When conducting a valuation of a residential investment property in Victoria, the capitalisation approach is applied. Which factor would most significantly reduce the capitalised value?
Correct Answer
C) A higher capitalisation rate
In the capitalisation approach, value equals net income divided by the capitalisation rate. A higher capitalisation rate (reflecting greater perceived risk or lower market demand) results in a lower capitalised value. Conversely, a lower capitalisation rate indicates stronger demand and produces a higher value.
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